Lessons Applicable: Election of Directors; Vacancy in the Board (Corporate Law)
FACTS:
- February 27, 1996: Ernesto Villaluna, Jaime C. Dinglasan (Dinglasan), Eduardo Makalintal (Makalintal), Francisco Ortigas III, Victor Salta, Amado M. Santiago, Jr., Fortunato Dee, Augusto Sunico, and Ray Gamboa were elected as BOD during the Annual Stockholders’ Meeting of petitioner Valle Verde Country Club, Inc. (VVCC)
- 1997 - 2001: Requisite quorum could not be obtained so they continued in a hold-over capacity
- September 1, 1998: Dinglasan resigned, BOD still constituting a quorom elected Eric Roxas (Roxas)
- November 10, 1998: Makalintal resigned
- on March 6, 2001: Jose Ramirez (Ramirez) was elected by the remaining BOD
- Respondent Africa (Africa), a member of VVCC, questioned the election of Roxas and Ramirez as members of the VVCC Board with the Securities and Exchange Commission (SEC) and the Regional Trial Court (RTC) as contrary to:
- Sec. 23. The board of directors or trustees. - Unless otherwise provided in this Code, the corporate powers of all corporations formed under this Code shall be exercised, all business conducted and all property of such corporations controlled and held by the board of directors or trustees to be elected from among the holders of stocks, or where there is no stock, from among the members of the corporation, who shall hold office for 1 year until their successors are elected and qualified.
- Sec. 29. Vacancies in the office of director or trustee. - Any vacancy occurring in the board of directors or trustees other than by removal by the stockholders or members or by expiration of term, may be filled by the vote of at least a majority of the remaining directors or trustees, if still constituting a quorum; otherwise, said vacancies must be filled by the stockholders in a regular or special meeting called for that purpose. A director or trustee so elected to fill a vacancy shall be elected only for the unexpired term of his predecessor in office. xxx.
- Makalintal's term should have expired after 1996 there being no unexpired term. The vacancy should have been filled by the stockholders in a regular or special meeting called for that purpose
- RTC: Favored Africa - Ramirez as Makalintal's replacement = null and void
- SEC: Roxas as Vice hold-pver director of Dinglasan = null and void
- VVCC appealed in SC for certiorari being partially contrary to law and jurisprudence
ISSUES:
1. W/N there is an unexpired term - NO
2. W/N the remaining directors of a corporation’s Board, still constituting a quorum, can elect another director to fill in a vacancy caused by the resignation of a hold-over director. - NO
HELD: Petition Denied. RTC Affirmed.
1. NO
- “term” time during which the officer may claim to hold the office as of right
- not affected by the holdover
- fixed by statute and it does not change simply because the office may have become vacant, nor because the incumbent holds over in office beyond the end of the term due to the fact that a successor has not been elected and has failed to qualify.
- “tenure”
- term during which the incumbent actually holds office.
- Section 23 of the Corporation Code: term of BOD only 1 year - fixed and has expired (1 yr after 1996)
2. NO
- underlying policy of the Corporation Code is that the business and affairs of a corporation must be governed by a board of directors whose members have stood for election, and who have actually been elected by the stockholders, on an annual basis. Only in that way can the directors' continued accountability to shareholders, and the legitimacy of their decisions that bind the corporation's stockholders, be assured. The shareholder vote is critical to the theory that legitimizes the exercise of power by the directors or officers over properties that they do not own.
- theory of delegated power of the board of directors
- Section 29 contemplates a vacancy occurring within the director’s term of office (unexpired)
- vacancy caused by Makalintal’s leaving lies with the VVCC’s stockholders, not the remaining members of its board of directors